One of the many joys of writing about the stock market is the sheer impossibility of acquiring expert up-to-date knowledge about more than a tiny fraction of the companies and industries it represents.
I can’t possibly know how well Acme Widget’s products are selling right now, scientifically evaluate the promise of the compound Elixir Labs is developing, and gauge the effect of recent accounting changes on Multilevel Marketing Inc’s bottom line.
But the blogosphere’s teeming with the millions willing to give it a try, and I can only add my analysis of publicly available information to the clamor.
I also can’t be fully informed about the price action in each of the tens of thousands of securities, commodities, and other traded assets out there, for whatever edge that might confer. So, like everyone else, I pick my battles, make my educated guesses, and move on.
But there’s a subset of stocks I track a lot closer than most, simply because they’re family investments, ones frequently informed by research for my articles. (I eat what I cook, and am shocked—just shocked—by the proliferation of fantastically detailed research by all sorts of people unwilling or unable to directly profit from their own insights.)
So I’m tracking what I think are some of the very best investments out there, based on the research and analysis I’ve done. And because I’m following the price action closely, I think I can spot which ones are trading better than the rest at any given time.
Lately, a couple of the stocks covered in recent columns have traded well enough to warrant a follow-up.
Fortune Brands Home and Security (FBHS)
I summarized the case for FBHS on January 5, in a column about stocks that would benefit from a housing recovery, a theme proven richly rewarding over the last two months.
To rehash, the recent spinoff from Jim Beam (BEAM) maker Fortune Brands is a debt-free supplier of some of the leading home-improvement brands, including Moen sinks, Master Lock locks, and kitchen cabinets, windows, and doors sold under a wide variety of brand names. It’s managed to eke 4% revenue growth out of a moribund housing market, and its leading brands would be among the biggest beneficiaries in a recovery.
Pershing Square hedge-fund manager Bill Ackman has been an enthusiastic investor and proponent, and in fact yesterday’s breakout to a record high above $20 coincided with an Ackman interview on CNBC in which he said FBHS would triple its cash flow in a housing recovery. The stock is now priced at 17 times its cash flow for 2011, because no one thinks 2011 represents anything but a fraction of its true potential.
I’ve been very impressed by the steady bid for the stock during its march from $17.32 on January 5 to $20.50 now. Shares are up 67% since the spinoff five months ago. It’s hard to say where the ceiling might be, but there’s still room for further appreciation if the glimmers of hope for housing Ackman and Warren Buffett now see translate into real cyclical rebound from depressed levels.
Fortune Brands doesn’t need housing prices to jump 10%, a possibility one should keep in mind simply because no one is predicting anything close to it. It will benefit regardless, as the distressed and foreclosed properties are fixed up and rented out. And the rising rents and the price action suggest those days are near.
Select Comfort (SCSS)
In the same January 5 column that touched on FBHS I noted the strong price action and inexpensive valuation of Select Comfort, maker of the Sleep Number adjustable beds. The stock has rallied 44% since that mention, and 82% since I wrote about it in June.
At 23 times the (rising) current-year earnings estimates, it’s a lot less cheap these days, though you’re paying up for 27% revenue growth and earnings that could double this year. I’m a bit concerned by the low trading volume of yesterday’s breakout, after a minimal consolidation.
Spirit Aerosystems (SPR)
On the other hand, Spirit Aerosystems spent a good three weeks digesting recent gains before breaking out to a new one-month high yesterday, with increased volume, on the day of its analyst meeting. The stock is up 12% since my January 19 column noting strength in several Boeing (BA) suppliers.
Unlike FBHS and SSCS, Spirit doesn’t need a recovery in its field. Commercial airplane orders are already booming, lifted by burgeoning demand from emerging markets.
As a leading supplier of fuselage sections and other parts to former parent Boeing and, increasingly, its rivals, Spirit is poised to profit from the upswing for years to come, as suggested by its $32 billion order backlog. In the near term, production at Boeing is ramping up while Spirit’s capital spending on new programs is starting to tail off.
Spirit Aero is selling for less than 12 times the current year’s projected earnings, and less than ten times next year’s anticipated haul. It’s the top aerospace pick by Sterne, Agee, and Leach, and that analyst’s Barron’s piece a month ago does a good job of laying out the bull case.
Disclosure: FBHS, SSCS and SPR are investments in retirement accounts I manage for relatives. I’m long in-the-money FBHS March calls in my personal account.